Are Investors Too Giddy About Netflix?

The better-than-expected Q1 profit and subscriber growth results that Netflix reported last night thrilled investors. But it hasn’t settled the debate among analysts over whether the streaming company is just beginning to soar, or is about to peak. Netflix’s stock price is +135% so far in 2013, including today’s 24% jump to about $216 in late morning trading. Fans say that the Q1 numbers indicate that CEO Reed Hastings’ plan is working, and there’s no telling how far Netflix can go if it becomes a must-have service for people who want to stream TV shows and movies in the U.S. and abroad. For example Janney Capital Markets’ Tony Wible raised his target price this morning to $250 from $190 noting that Netflix’s deals to secure original content “may ultimately discourage competition.” Susquehanna Financial Group’s Vasily Karasyov raised his target to $224 from $107 saying that in summer 2014 Netflix could raise its $7.99 a month subscription price “which will provide additional support to the stock.”

But this morning Bernstein Research’s Carlos Kirjner stuck to his “market perform” rating and $125 price target. He’s skeptical that Netflix can raise its subscription price, estimating that it lost nearly 7M subscribers after mid-2011 when it split its streaming and DVD rental services dramatically raising the price for those who wanted to keep both. He also still believes that Netflix will face “increasing competition from Amazon, HBO, and potentially, in the fullness of time, Google and [pay TV distributors] in general and Comcast in particular.” B. Riley’s Eric Wold also stuck to his “neutral” rating and increased his price target to $180 from $165. He warns that the recently launched Redbox Instant, a streaming and DVD rental partnership between the kiosk service and Verizon, could “siphon off some of Netflix’s high-margin DVD subscribers.”

Wedbush Securities’ Michael Pachter remains the king of the Netflix bears, raising his target price today $10 to just $65 with an “underperform” rating. Much of the Q1 subscriber growth was due to the hoopla surrounding the original series House Of Cards and “is an acceleration of subscriptions that would have been sold later in the year.” That could hurt Q3 results “when original content dries up.” What’s more, Hollywood’s studios and TV networks “are not staffed by stupid people” — and they won’t hesitate to raise prices if they see Netflix generating lots of cash. Look, for example, at the tough terms that Disney’s demanding from theater owners who want to show Iron Man 3. If studios “are willing to extract incremental value from their oldest customers, they will not hesitate to extract incremental value from their newest customer, either,” Pachter says.